4 Things to Consider Before Taking a 10-year Mortgage

What are the drawbacks of a 10 year fixed mortgage?

From the chart below you can see that the payment for a 10 year mortgage is nearly twice that of a comparable 30 year mortgage. A 10 year mortgage will consume nearly twice the amount of a person’s monthly cash-flow available to spend on housing which means that the amount of money that a person can borrow is greatly reduced.

Additionally, someone who chose a 10 year term and then sustained a prolonged reduction of income may find themselves in a situation where they can no longer afford the higher monthly payments and thus be forced to either refinance or even sell their home if they couldn’t qualify for terms that they could afford.

Another less consequential drawback is the reduced value of the home mortgage interest tax deduction which allows most homeowners to exempt the interest portion of their mortgage payments from income tax. But if we are honest with ourselves, the tax value of the deduction is far outweighed by the cost of interest paid to the bank and thus should be of little consideration.